My last post warned that subcontractors on Federal construction projects should be alert to whether the Government designated the prime contract as a “commercial items’ contract, rather than a construction contract.  Agencies often assume that in a “commercial items” contract — even if the contract is for purchase of construction-related services — the prime contractor is not required to obtain a payment bond.

Leaving aside whether this assumption is justified, it is almost certainly an unintended — and ironic — consequence of the “commercial items” contracting rules.  “Commercial items” contracting was supposed to make Federal contracting simpler and more like commercial contracts, for use when the Government was purchasing items available in the commercial marketplace.  The thought was, for instance, if the Government buys pencils, why load up the contract with a lot of complicated specialized requirements?  So, when a contract is designated as one for the purchase of “commercial items,” few of the standard Government clauses apply.  It is the Federal equivalent of ordering from Staples.

Ironically, bonds in Federal construction contracts are also supposed to mimic certain aspects of construction contracts in the commercial marketplace.  In commercial construction contracts, an unpaid subcontractor may lien the property to secure payment from a nonpaying prime.  That protection is unavailable in many public construction projects, because state laws typically prohibit liens on public property.  Congress therefore enacted the Miller Act to require Federal prime construction (and other) contractors to obtain payment bonds to protect their subcontractors.  The bond performs the same function as a lien in the private sector.

Therein lies the rub: if a “commercial items” contract does not require a payment bond, it looks less like — not more like — a private sector construction contract.  This may be well and good when the Government buys pencils, but what if it buys construction?  The FAR defines “commercial item” to include “services of a type offered and sold competitively in substantial quantities in the commercial marketplace.”  Could construction be a “service of a type offered and sold competitively in substantial quantities in the commercial marketplace?”  It would be fair to say that if there were no wiggle room in that definition, agencies would not have needed the 2003 OFPP guidance warning them against overbroad designation of contracts as “commercial items” contracts.

Thus, on the knife edge of a hair-splitting definitional choice hangs the subcontractor’s rights.  If the agency designates a contract as a “commercial items” contract — even though it may look like a construction contract, walk like construction contract, and quack like one — the unwary subcontractor could be left without a payment bond to protect itself from deadbeat primes.